The number of Americans filing new claims for unemployment aid unexpectedly fell last week, but continued weakness in business spending on capital goods suggested slower economic growth in the fourth quarter.
Initial claims for state jobless benefits fell 10,000 to a seasonally adjusted 316,000, the Labor Department said on Wednesday. The second straight week of declines defied economists' expectations for a rise in claims to 330,000 and raised hopes for strong payroll growth in November.
"We are at a level that, if sustained, would point to solid job gains ahead. There is also a good chance that the October payroll gain may not have been an aberration," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Employers added 204,000 new jobs to their payrolls last month, far more than expected, fanning speculation that the U.S. Federal Reserve might start to wind down its economic stimulus sooner rather than later.
The improving labor market tone has helped to boost consumer sentiment. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment increased to 75.1 for November, up from a final reading of 73.2 in October.
The preliminary November reading of the overall index was reported at 72.0 earlier this month.
But while the labor market picture is firming, businesses appear to be cautious about investment spending.
A separate report from the Commerce Department showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 1.2 percent last month.
It was the second monthly decrease in these so-called core capital goods. The data surprised Wall Street economists who had expected a gain, partly because private surveys of national factory activity had shown strength in October.
"The picture of manufacturing strength from survey data is not being captured in the government-collected data on new orders and this divergence is a puzzle," said John Ryding, chief economist at RDQ Economics in New York.
Nevertheless, the latest report suggested some ebbing in the factory sector's momentum, and hinted that a 16-day partial government shutdown last month hurt business confidence.
Trimming GDP Forecasts
Shipments of core capital goods, used to calculate equipment spending for the government's measure of gross domestic product, fell 0.2 percent for a second consecutive month.
The drop suggested investment in equipment would probably not rise much this quarter after falling in the third quarter for the first time in a year.
Economists at Morgan Stanley trimmed their fourth-quarter GDP growth estimate by two-tenths of a percentage point to 1.2 percent on the data. Barclays lowered its forecast to 1.7 percent from 1.8 percent.
"Investment has slowed, but it's going to be temporary," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "As long as there is no policy misstep, we will start to see investment pick up."
The report showed overall orders for durable goods - items from toasters to aircraft that are meant to last at least three years - fell 2 percent, largely because demand for civilian and defense aircraft tumbled.
Durable goods orders had increased 4.1 percent in September.
A fourth report showed some easing in the pace of factory activity in the Midwest this month, although it remained strong and showed factory employment surged to a one-year high.
The Institute for Supply Management-Chicago business barometer fell to 63.0 from 65.9 in October. A reading above 50 indicates expansion in the regional economy, which is dominated by automobile production.
Along with the drop in new claims for jobless benefits, the data helped lift stocks on Wall Street in light trading ahead of Thursday's Thanksgiving holiday. U.S. Treasury debt prices fell, while the dollar rose marginally against a basket of currencies.
A number of other regional factory reports for November had suggested the sector had taken a step back, and even the reading for the Midwest showed weaker new orders and order backlogs.
Economists say a strong inventory build-up in the third quarter is likely weighing on activity.
"Businesses were caught off guard by the softening in demand. Some of the build-up in inventories was unwanted, so that is going to lead to weak production early this quarter," said Moody's Analytics' Sweet.
(Reporting by Lucia Mutikani; Additional reporting by Rodrigo Campos in New York; Editing by Krista Hughes)